Q. I'm 54 years old and I have very little bond exposure in my investments. I was wondering if building a bond ladder using TIPS is a smart thing to do in the current investment environment?

-- John from Jersey

A. Treasury Inflation-Protected Securities, or TIPS, are Treasury securities that are indexed to inflation.

Depending on other factors in your situation and timeframe for your financial goals, adding fixed income to your investments may help to reduce the risk of your overall portfolio, said Eric Carlson, a certified financial planner with Ameriprise Financial Services in Florham Park.

He said TIPS are designed to hedge inflation risk and a bond ladder would stagger short and long term bond maturities.

"In our current interest rate situation with relatively low inflation and a rising interest rate environment potentially on the horizon, building a bond ladder from TIPS may limit your overall growth and income potential," Carlson said. "TIPS generally have a long duration and might experience higher risk if interest rates escalate."

Carlson said it may instead be worthwhile to consider a diversified approach by using several sectors of the bond market, including, but not limited to TIPS, municipal bonds, high-yield corporate, short-term corporate and floating rate bonds.

"In a rising interest rate environment it may also be useful to shorten the duration of your bond exposure and strategically use multiple bond sectors," he said.

Sean Keating, a certified financial planner with Patriot Financial Advisors in Eatontown, said he appreciates the security that Treasuries provide for principal protection, but in the current interest rate environment, there are better options than laddering to accomplish your goals.

"As people age, their costs accelerate faster than the average cost of living and inflation," he said. "My fear is that Treasuries will not keep up with the real cost of inflation."

Assuming you're planning to work to age 64 and you're still in your accumulation phase of retirement planning, he offers two alternatives.

"Since there is a 10-year window until you may need the retirement income cash, I would consider an annuity or an overfunded whole life or indexed life policy," he said. "The loan from the life insurance may provide similar access to tax-free funds as the Treasuries in 10 years -- assuming you are in good health to qualify for affordable life insurance."

Keating's second idea is an annuity, which he says will allow you to take a little more risk.

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"Both of these strategies should allow you to get real rate of returns which should outperform a portfolio with Treasurys and still provide a good level of security to needed cash flow," he said. "You can then purchase some bonds in a laddered structure."

With a higher portfolio value, he said, it will help reduce the bond portion needed for short-term cash needs.